Chapter 7- Consumers, Producers, and the Efficiency of Markets

On a graph, consumer surplus is represented by the area

below the demand curve and above price

Coffee and tea are substitutes. Bad weather that sharply reduces the coffee bean harvest would

decrease the consumer surplus for coffee and increase producer surplus for tea

What is the relationship between demand curve and willingness to pay?

demand curve shows max amount buyers are willing to pay for a given market quantity, the price given by the demand curve reps the willingness to pay

Other things equal, what happens to consumer surplus if the price of a good falls? Why?

increases because the buyers who were already purchasing receive an increase in consumer surplus (because they are paying less) some new buyers enter the market because the price of the good is now lower than their willingness to pay

In what way does the demand curve represent the benefit consumers receive from participating in a market?

it shows the difference between what the buyer is willing to pay and what the buyer actually pays, so it measures the benefit the buyer didn't have to "pay for"

What is market efficiency

measure of the availability (to all participants in a market) of the information that provides maximum opportunities to buyers and sellers to effect transactions with minimum transaction costs

What is a producer surplus?

the amount a seller paid for a good-the seller's cost of providing it

In addition to the demand curve, what else must be considered to determine consumer surplus?

the amount the buyer actually pays for the good, with consumer surplus measured as the difference between what the buyer is willing to pay and what the buyer actually pays

Consumer surplus is

the max a buyer is willing to pay-the amount the buyer actually pays

Efficiency is attained when

total surplus is maximized